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Many in OPEC Still See Fat Oil Supply

By Benoit Faucon
Even as U.S. oil prices headed towards their highest level in two and a half years Monday, leading OPEC members have concluded protracted Libyan disruptions don’t warrant an output hike for now.

Some voices even go so far as to say there is a risk of a glut if some OPEC producers over-react.

“We [in OPEC] agreed that there is no oil shortage on the market,” Energy minister Youcef Yousfi said Sunday.

Such comments show that OPEC as a whole is taking a largely hands-off attitude towards the Libyan outages, even as unofficial leader Saudi Arabia responds aggressively by pumping more oil. OPEC’s largely indifferent response points to a paradox within an oil market that continues to be characterized by robust inventories, even as anxiety grows in the wake of the mushrooming political crisis in the Middle East and North Africa.

Al Sada added that members of the Organization of Petroleum Exporting Countries are “evaluating” whether they need to meet or not. OPEC is next scheduled to convene in June, but there has been speculation of a possible emergency meeting. Yet, many members, notably OPEC President Iran, have ruled out any need to meet for now.

On Monday, U.S. crude rose by $2 a barrel to more than $106 a barrel amid fighting near Libyan refining centers. That was the highest level seen in two and a half years. About 1 million of Libya’s 1.6 million barrels a day is currently shut due to the political crisis in the country, according to the most recent estimate by the International Energy Agency.

Yet the mood within OPEC–which produces more than a third of the oil consumed each day globally–is in stark contrast with 2008 when oil prices approached $150 a barrel. Then, many in the group expressed concern over high prices.

But today, many say the rally will be short lived and see no scarcity of oil on the market.

When unrest started in Libya, Algeria’s Yousfi and others said OPEC could boost supplies if needed. But many are now backing off these statements.

Still, about a week ago, Saudi Arabia countered the rest of the group, increasing its oil output by at least 500,000 barrels a day to nine million barrels a day.

Without referring to the Saudis, Yousfi said Sunday that “one shouldn’t go on the other side [of increasing output excessively] and see oil prices fall at very low levels. One needs to be extremely prudent.”

The price “will come back to normal as soon as people will become aware that there is no shortage of oil,” Yousfi said. Yousfi added that the Saudi action “was probably for the psychological impact, to tell people on the market that there shouldn’t be panic…more than to meet a shortage.”

Some experts even say the group should reduce its output. “OPEC are already producing over their quota, so now is an appropriate time to reduce production, and Saudi should not pump more unless there are more buyers, but there are none at present,” said Kuwait-based oil analyst Kamel Al Harami.

Comments (1 of 1)

If we start to dump oil from the strategic petroleum reserve, at a price "slightly higher" than market price, we will increase supply in the market without losing any oil to actual sales from the SPR. If we dump oil in 10 million barrel blocks at that slightly higher price, the speculators will realize that they cannot make money speculating except by shorting the market, thus driving it down. We have to realize that the SPR is a hedge not against the loss of supply alone, but is a strategic hedge against price increases if used strategically and with the purpose of buffering against speculation. We have to have the courage to use the SPR in this way, to hurt the speculators and deter them from their goals.